The rapidly growing database of completely sequenced genomes of bacteria, archaea and eukaryotes (approximately 200 genomes available by the end of 2004 and many more in progress) creates both new opportunities and new challenges for genome research. In order to take advantage of this information, we developed a system of Clusters of Orthologous Groups of proteins (COGs) from 30 completely sequenced genomes. This database is being continuously updated to incorporate newly appearing genomes. The COG approach allows nearly automatic functional annotation of 60-80% of the proteins encoded in each of the tested bacterial and archaeal genomes. During last year, the COG analysis was substantially expanded to include euakryotic genomes. Functional and evolutionary patterns in the recently constructed set of 5,873 clusters of predicted orthologs (eukaryotic orthologous groups or KOGs) from seven eukaryotic genomes: Caenorhabditis elegans, Drosophila melanogaster, Homo sapiens, Arabidopsis thaliana, Saccharomyces cerevisiae, Schizosaccharomyces pombe and Encephalitozoon cuniculi, were examined in detail. Conservation of KOGs through the phyletic range of eukaryotes strongly correlates with their functions and with the effect of gene knockout on the organism's viability. The approximately 40% of KOGs that are represented in six or seven species are enriched in proteins responsible for housekeeping functions, particularly translation and RNA processing. These conserved KOGs are often essential for survival and might approximate the minimal set of essential eukaryotic genes. The 131 single-member, pan-eukaryotic KOGs we identified were examined in detail. For around 20 that remained uncharacterized, functions were predicted by in-depth sequence analysis and examination of genomic context. Nearly all these proteins are subunits of known or predicted multiprotein complexes, in agreement with the balance hypothesis of evolution of gene copy number. Other KOGs show a variety of phyletic patterns, which points to major contributions of lineage-specific gene loss and the 'invention' of genes new to eukaryotic evolution. Examination of the sets of KOGs lost in individual lineages reveals co-elimination of functionally connected genes. Parsimonious scenarios of eukaryotic genome evolution and gene sets for ancestral eukaryotic forms were reconstructed. The gene set of the last common ancestor of the crown group consists of 3,413 KOGs and largely includes proteins involved in genome replication and expression, and central metabolism. Only 44% of the KOGs, mostly from the reconstructed gene set of the last common ancestor of the crown group, have detectable homologs in prokaryotes; the remainder apparently evolved via duplication with divergence and invention of new genes. CONCLUSIONS: The KOG analysis reveals a conserved core of largely essential eukaryotic genes as well as major diversification and innovation associated with evolution of eukaryotic genomes. The results provide quantitative support for major trends of eukaryotic evolution noticed previously at the qualitative level and a basis for detailed reconstruction of evolution of eukaryotic genomes and biology of ancestral forms.